California Assembly Bill 5 (AB5), went into effect on January 1, 2020 and requires companies that hire independent contractors to reclassify them as employees, with a few exceptions. The biggest question regarding AB5 was how to differentiate between an employee and a contractor. The California Supreme Court created a three-way test to help, commonly called the ABC Test:
- The worker can perform services free of the company’s control and/or direction.
- The worker performs tasks that are outside of the company’s regular activities.
- The worker is also engaged in an independently established trade or business.
- California Assembly Bill 5 (AB5) extends employee classification status to gig workers.
- Companies must use a three-pronged test to prove workers are independent contractors, not employees.
- AB5 is designed to regulate companies that hire gig workers in large numbers, such as Uber, Lyft, and DoorDash.
- On Aug. 10, 2020, a California judge ruled against Uber and Lyft for failing to comply with the law.
- And on Sept. 4, 2020, the Calif. legislature passed—and Governor Gavin Newsom signed—Assembly Bill 2257, which exempts a long list of job categories from AB5 strictures. It went into effect immediately.
Among those exempted from the strictures are still and video photographers and editors, freelance writers, content contributors, editors, translators, fine artists, and musicians. One key change was the removal of caps for categories of freelancers that had limited the number of contributions they could make to an outlet, such as a website, without having to be reclassified as employees. Not exempted: Workers for gig-economy companies such as Lyft and Uber.
As usual, navigating the constantly changing legal landscape for independent contractor status can be very complicated. If your business uses, or is thinking of using, independent contractors to assist with any business functions, make sure you contact a legal professional to make sure you are staying compliant with the latest legal developments.